Stop Blaming Poor and Minority Homeowners for Credit Crisis

08 Oct Stop Blaming Poor and Minority Homeowners for Credit Crisis

One of the more distasteful lines of commentary and reporting concerning the credit and mortgage crisis is exploded by Daniel Gross in a Slate post concerning the Community Reinvestment Act, which encourages banks to lend to underserved populations, including poor and minority borrowers. If you listen to some of the so-called pundits, you would be led to the conclusion that the credit crisis was a direct result of lending to poor and minority homeowners who have somehow let us all down by failing to pay their mortgages. Leaving aside for the moment the racist and xenophobic overtones of much of this commentary, and the ridiculous notion that the credit crisis in 2008 is the fault of legislation proposed by Jimmy Carter, who, for those of you who are too young to remember, was elected to office in 1976, Slate exposes the real weakness of the contention that poor and minority borrowers are the cause of the credit crisis:

The Community Reinvestment Act applies to depository banks. But many of the institutions that spurred the massive growth of the subprime market weren’t regulated banks. They were outfits such as Argent and American Home Mortgage, which were generally not regulated by the Federal Reserve or other entities that monitored compliance with CRA. These institutions worked hand in glove with Bear Stearns and Lehman Brothers, entities to which the CRA likewise didn’t apply. There’s much more. As Barry Ritholtz notes in this fine rant, the CRA didn’t force mortgage companies to offer loans for no money down, or to throw underwriting standards out the window, or to encourage mortgage brokers to aggressively seek out new markets. Nor did the CRA force the credit-rating agencies to slap high-grade ratings on packages of subprime debt.

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